Moutai, the stronger spirit of China?

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Have you ever tried Kweichow Moutai, the Chinese liquor also known as baijiu? If not, I am afraid some people may say you don’t really know China that much.

Leading Chinese liquor producer Moutai, which has fans worldwide from first Chinese Premier Zhou Enlai to former U.S. President Richard Nixon, said on December 16 that it would raise prices on its products by an average of 20 percent from next year, another clear sign of how difficult it will be for Beijing to rein in inflation.

Moutai’s price increase came as a surprise but turned out to be good news for its Shanghai-listed shares — up more than 3 percent by Thursday’s market close — and Moutai is one of the most expensive stocks in China, nearly 207 yuan (US$31) per share. In fact, the news of Moutai’s price increase also helped the entire retail sector as more analysts put buy ratings on retail stocks for 2011 as inflation is now clearly confirmed as a very important investment theme for next year.

Moutai said it wanted to serve customers better, however, it also faced the pressure of rising costs, so a modest price increase should be understood. Fair enough? Apparently, Chinese consumers do not seem to blame Moutai — perhaps they are becoming accustomed to the trend.

Before the price rise, the wholesale price of a high-quality bottle of Moutai directly from the factory was about 500 yuan, but you can’t normally get it at such a low price. To be more realistic, in the secondary wholesale market, the price is more than 1,000 yuan and the retail end-price for consumers is above 1,500 yuan. Even so, many consumers complain they find it difficult to buy Moutai at stores, which often sell out due to demand, especially during festivals or holidays when the Chinese just love to drink Moutai.

Here’s a real story to help you understand how important Moutai is to Chinese people and even to the government. In March, the central government usually hosts its annual parliamentary meetings for about a week in Beijing. During that week, even the Shanghai mayor may not find it easy to get Moutai in the capital to the table for drinks with senior central government officials because almost every city mayor or province chief wants to buy Moutai as gift or to drink with those top officials. This is the unique culture of Chinese politics: you get Moutai and the conversation moves ahead.

After Moutai’s price increase on December 16, more investors focused on Moutai’s top rival Wuliangye. Listed in Shenzhen, it also saw its share price gain 1.6 percent by Thursday’s close in response to Moutai’s price increase. More interestingly, U.S. buyout giant Kohlberg Kravis Roberts also chose Thursday to announce a deal to invest in VATS, China’s largest liquor store chain, which operates more than 270 liquor stores in all mainland provinces. Sounds like a perfect timing?

Moutai’s price increase will certainly make the powerful National Development and Reform Commission look bad as the NDRC is trying to do all it can do to get the retail prices of all kinds of foodstuffs under control. The NDRC has literally ordered major Chinese food oil makers not to raise retail prices in coming months, but apparently it failed to convince Moutai to help keep inflation under control.

After all, China is going to be a market-oriented economy, isn’t it? It’s all about supply and demand, very basis of classic economics. If costs rise and you don’t raise your prices, you suffer.

Moutai actually also played a significant role in helping China build political relations with the rest of the world since the late 1950s. It featured during the milestone trip by U.S. President Nixon in February 1972 when he had dinner with Chinese Premier Zhou and the two gentlemen drank quite a lot of Moutai.

Well, President Nixon probably enjoyed the drink more than Premier Zhou. Some Chinese from the older generation who remember that part of Sino-U.S. history may want to spread an unofficial story about Nixon’s China trip. The saying goes that the Chinese should thank Moutai for helping Nixon make a quick decision to normalise ties with China and acknowledge the “One China” policy.

Since then, Moutai was branded as “the spirit of China” by state media. So, what’s the spirit of the United States in return? Budweiser?

Well, President Nixon probably enjoyed the drink more than Premier Zhou. Some Chinese from the older generation who remember that part of Sino-U.S. history may want to spread an unofficial story about Nixon’s China trip. The saying goes that the Chinese should thank Moutai for helping Nixon make a quick decision to normalise ties with China and acknowledge the “One China” policy.

Since then, Moutai was branded as “the spirit of China” by state media. So, what’s the spirit of the United States in return? Budweiser?

George Chen is a Reuters editor and columnist based in Hong Kong.

Photo: A Chinese waitress yawns as she stands next to a giant bottle of Maotai, one of the most famous liquors in China, during an exhibition in Guangzhou, Guangdong province in this picture taken July 18, 2004. REUTERS/China Photos

I like Budweiser, but we shouldn’t try to match liquor with beer. Late in the evening on the 19th, when President Obama and Premier Wen retire to the study for some off-the-record conversation, Obama should pour a couple shots of Jack Daniels Sour Mash Bourbon.

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George Chen is no longer an employee of Thomson Reuters.
Based in Hong Kong, George Chen focuses on China's financial industry and U.S.-China relations. He was named Reuters Company News Reporter of the Year in 2006. A native of Shanghai, George is the author of Foreign Banks in China. To learn more about George: www.MrShangkong.com